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Absorbing the hit: The City has been ordered to prepare itself for expected losses (Picture: Reuters)

British banks were today ordered to raise £25billion to absorb expected losses in a move criticised by business secretary Vince Cable.

Lenders need the reserves to cover the expected £50billion cost of the eurozone crisis, bad debts and mis-selling scandals, the Bank of England warned.

But Mr Cable said the ruling by the bank’s Financial Policy Committee could harm the economic recovery – a view he claimed was shared by the incoming governor, Canadian Mark Carney.

‘The idea that banks should be forced to raise new capital during a period of recession is an erroneous one. This FPC exercise will prolong the time it takes for the British economy to recover by further depressing already-weak SME lending,’ Mr Cable told Sky News.

‘I believe the weight of the argument is in favour of counter, not pro-cyclical, lending measures, and I rather suspect that the new governor of the Bank of England shares this view.’